Supplier Scenarios

March 10, 2005
The experiences of three Wal-Mart suppliers -- Jack Link's, HP and Pacific Bicycle -- illustrate how manufacturers, sometimes in very different ways -- are working with Wal-Mart's RFID mandate.

Jack Link's Beef Jerky

Minong, Wis.-based Jack Link's was one of 37 companies that volunteered to meet Wal-Mart's January 2005 directive. "We knew it was coming sooner or later, and we had been looking for some time for help in automatic data collection, both in the manufacturing and supply-chain movements," says Karl Paepke, vice president of operations at Jack Link's, a company that, says Paepke, hadn't focused a lot of time, money or resources on bar code technology. "It was about the time that the Wal-Mart mandates came down that we were looking at an investment in bar-code scanning, something to give us a little better handle on our product movements internally," he says.

RFID technology made its debut at Jack Link's last September and continues as a print-and-apply operation for cases of goods headed for Wal-Mart.

Mindset was the major hurdle to implementing RFID technology. "We're a traditional small- to mid-market manufacturing company in that we spend a lot of time, a lot of effort, a lot of investment in the true manufacturing of our products. And we've kind of neglected a lot of the systems, processes and procedures along the way," confesses Paepke. "In order for us to really benefit from RFID throughout our complete supply chain, we've got to make some major strides in those areas," he states.

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Paepke recalls some "interesting conversations" about the investment in RFID and the expected return. "It is so new. You can't just pull out a textbook and say this is what we expect to return," he notes. "The Wal-Mart mandate helped us in convincing our ownership that this [was] the direction we needed to go," he says. "We were saying we've got to do it to some extent anyway. Why not leverage that technology that we're going to have to have in place to be compliant [with Wal-Mart's supplier mandate] and use it to drive efficiencies in all areas of the business?"

Hewlett-Packard Co.

$80 billion HP began working with RFID in its own supply chain nearly three years ago and claims to have now one of the largest commercial implementations of the technology. The company "started by doing some work in the labs, doing some early experimentation in our manufacturing technology group as well as training some of our systems integration people in both the physical side of RFID and thinking through solution stacks, from bottom to top," relates Frank Lanza, the Littleton, Mass.-based director of RFID solutions for HP. As part of the Wal-Mart pilot program, nearly a year ago HP began putting RFID tags on packages and pallets for two printer models and one scanner. This past January the tagging was increased to about 40 products. HP ships 65 different consumer stock-keeping-units (SKUs) to Wal-Mart, a collection that includes printers, scanners, PCs and hand-held devices. HP says it has the capability to RFID tag everything it ships to Wal-Mart. "When they give us the green light to tag everything, we will," says an HP spokesperson. RFID tagging provides HP with "proof positive" of shipment and receipt, something that's "pretty significant" in view of the volume of goods being shipped to Wal-Mart, says Lanza. "What it's also done for us is allowed us to get a lot of learning that we can now apply in other areas," he adds. HP says during its RFID ramp-up it has learned how to save time in building pallets and rolling a line.

HP doesn't break out a cost figure for tagging its products for Wal-Mart, but it does project that its five-year investment in RFID technology will be $150 million.

Pacific Cycle

A division of Canada's Dorel Industries Inc., Madison, Wis.-based Pacific Cycle is probably better known by such brand names as Schwinn, GT, Mongoose, Roadmaster and Murray. A supplier of bicycles to Wal-Mart since the 1960s and now among the retailer's top-100 suppliers, it began a pilot program in March 2004 to figure out how to tag products, where to place the tags and what process change was involved, explains Ed Matthews, director of information systems. Pacific Cycle began shipping tagged product to Wal-Mart last September. "And we are now in the process of integrating [RFID] into our back-end system," reports Matthews. He figures the company has invested $1.5 million to $2 million in RFID technology, which is being used on products destined for several retailers, not just Wal-Mart.

Most of its bicycles are actually produced in China or Taiwan, and it is at one of Pacific Cycle's distribution centers that the RFID tags are applied. Boxes containing the bicycles are opened, the tags attached to the owner's manual, the cartons re-stapled, put back on pallets and shipped. An RFID tag also goes on the outside of the shrink-wrap on the pallet.

Matthews admits the costs of RFID are now greater than the benefits to his company. Pacific Cycle hopes to get a better view of the supply chain from manufacturing all the way through to the display space at stores. But "as we get into Generation 2 [technology] and costs come down, we are hoping that in another year-and-a-half to two years we will start to get a real return off of it," says Matthews.

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